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BONDS: NZGB Yields Recover Post Half-Year Economic Update, Curve Steepens

BONDS
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Focus in New Zealand today was on the on the Half-Year Economic & Fiscal Update, NZGBs curve bear-steepened following the release, with yields at one point trading 1-5bps cheaper, the move has been partially reversed as the markets closes, focus will now turn to GDP on Thursday.

  • New Zealand's government faces prolonged budget deficits, with the operating balance (OBEGAL) now projected to remain in deficit until at least 2029, a year later than previously forecast. Weaker economic growth, poor productivity, and lower tax revenues have sharply downgraded the fiscal outlook, with GDP expected to grow just 0.5% in the year through June 2025. To address rising debt and widening deficits, Finance Minister Nicola Willis has announced spending cuts and introduced an alternative OBEGALx measure, which is forecast to return to surplus by 2029. Net debt is projected to remain elevated at around 45% of GDP over the forecast period.
  • Non Resident government bond holding ticked slightly lower in November to 61.2% from 62.0% October, however still holds well above the 5 year average of 56.5
  • US tsys have done very little throughout the session, however are slightly outperforming NZGBs. The US 10yr is -0.2bps at 4.395%.
  • NZGBs curve has bear-steepened again today, the 2yr still hovers near yearly lows at 3.750%, +0.2bps for the session, while the 10yr is +0.9bps at 4.439%, after hitting a session high of 4.489%. The 5s10s is 1bps higher at 49.30 and now trades at its steepest levels for the year and almost 40bps steepening since August.
  • The OIS market has firmed 2bps to 43bps of cuts priced in for the Feb erasing Monday's, although still slightly off recent highs of 46bps made on Dec 3th. There is a cumulative 110bps of cuts priced in through to October 2025.
  • Tomorrow we have Westpac Consumer Confidence & BoP Current Account Balance tomorrow, followed by GDP on Thursday.
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Focus in New Zealand today was on the on the Half-Year Economic & Fiscal Update, NZGBs curve bear-steepened following the release, with yields at one point trading 1-5bps cheaper, the move has been partially reversed as the markets closes, focus will now turn to GDP on Thursday.

  • New Zealand's government faces prolonged budget deficits, with the operating balance (OBEGAL) now projected to remain in deficit until at least 2029, a year later than previously forecast. Weaker economic growth, poor productivity, and lower tax revenues have sharply downgraded the fiscal outlook, with GDP expected to grow just 0.5% in the year through June 2025. To address rising debt and widening deficits, Finance Minister Nicola Willis has announced spending cuts and introduced an alternative OBEGALx measure, which is forecast to return to surplus by 2029. Net debt is projected to remain elevated at around 45% of GDP over the forecast period.
  • Non Resident government bond holding ticked slightly lower in November to 61.2% from 62.0% October, however still holds well above the 5 year average of 56.5
  • US tsys have done very little throughout the session, however are slightly outperforming NZGBs. The US 10yr is -0.2bps at 4.395%.
  • NZGBs curve has bear-steepened again today, the 2yr still hovers near yearly lows at 3.750%, +0.2bps for the session, while the 10yr is +0.9bps at 4.439%, after hitting a session high of 4.489%. The 5s10s is 1bps higher at 49.30 and now trades at its steepest levels for the year and almost 40bps steepening since August.
  • The OIS market has firmed 2bps to 43bps of cuts priced in for the Feb erasing Monday's, although still slightly off recent highs of 46bps made on Dec 3th. There is a cumulative 110bps of cuts priced in through to October 2025.
  • Tomorrow we have Westpac Consumer Confidence & BoP Current Account Balance tomorrow, followed by GDP on Thursday.